Legal Checklist for Short-Term Rental Owners

Strength-Joey-OPTBy Joey Strength

Special to Business in Savannah

Though online services like Airbnb and VRBO.com are wildly popular (in summer 2015, more than 17 million guests rented through Airbnb alone), the decision to place a home or rental property on the market for short-term occupancy should not be made lightly. Indeed, the City of Savannah has had a contentious relationship with private vacation property rentals since more than 40 short-term hosts were served surprise cease-and-desist letters by the City in 2013. Currently, policymakers are mired in debate surrounding the ordinances applicable to such rentals. It’s best to navigate these matters with caution, and there are a number of essential considerations an owner must take into account before offering his or her property for short-term rental.

Zoning and Ordinances. Before making a property available for short-term rental, an owner should consider all applicable zoning and related ordinances. Governing rules differ based upon the jurisdiction and may also differ based on zoning district within jurisdictions. In addition to its zoning ordinance, the City of Savannah has an ordinance specifically addressing short-term vacation rentals within the city limits, and the ordinance includes provisions for application fees; evidence of code compliance, insurance, and ownership; payment of taxes; and penalties for non-compliance. Understanding applicable zoning and related ordinances is essential; disobeying them can result in legal action.

Restrictive Covenants. Similarly, owners who live in a subdivision with restrictive covenants should review the governing documents of their neighborhood to determine if they regulate rental activity. Restrictive covenants often include provisions that prohibit rentals of less than several months, limit commercial activities, or restrict the number of unmarried occupants within properties, and other similar provisions, any one of which might prevent an owner from renting his or her property as a short-term rental. Restrictive covenants may also include rules and regulations for the neighborhood that should be shared with potential occupants.

Insurance. An owner should also review his or her insurance policies to make sure that they cover injuries or losses arising from the use of the property by short-term renters, as some homeowner’s insurance policies do not cover these claims. An uninsured injury or loss has the potential of exposing an owner to liability far in excess of the benefits associated with the short-term rental.

Form of Ownership. An owner who intends to make a property available for short-term rental should consider holding title to the property in an entity such as a limited liability company or corporation, as such an arrangement can provide anonymity, an intermediary entity between the owner and occupant if a dispute arises, and in some cases, protection from individual liability for an owner.

Legal Agreement. An owner who intends to offer his or her property for short-term rental should utilize a professionally drafted occupancy agreement, specific to the arrangement the owner wishes to establish with the occupant. There is a distinction in Georgia law between “innkeepers” and “landlords,” and the distinction can have significant consequences if a tenant’s property is lost during an occupancy period or if the occupant refuses to leave at the end of an occupancy period. An occupancy agreement should identify the nature of the relationship, the rights and responsibilities between the parties, and any special restrictions an owner wishes to place on the use of the property, to best protect the owner’s interests.

Taxes and Fees. Owners should be aware that short-term rentals are subject to local, state, and federal taxes, including in some cases sales taxes and hotel/motel or other specially designated taxes, and communities are beginning to take proactive steps to collect these taxes. For rentals governed by the City of Savannah ordinance, there are also application and certificate fees.

Ultimately, the ease of use associated with online brokers like Airbnb and VRBO.com should not be confused for a lack of risk. Property owners should consider these factors when deciding whether or not to make a property available for short-term rental and take appropriate steps to protect themselves and their interests if they do.